Interest in the restructuring of the power sector has become a worldwide phenomenon, though the motives for various political leaders and economic planners vary. In Western market economies, power sector reformation is an element in the redefinition of the function of the state in the economy and recognition of the changed nature of the industry. Whereas in other regions, reform of the power sector has been one component of a broad economic reform agenda that typically includes price liberalization, macro-economic stability, privatization, creation of legal frameworks and financial systems that support private enterprise, and reform of foreign trade relationship.

The importance of the power sector in national economies creates an internal tension for policymakers. On the one hand, the reconstitution of an industry characterized by high prices, poor operating performance, unreliable service, and financial losses is crucial to the revitalization of a productive economy. On the other hand, the sector itself is often considered a strategic asset, and radical change will significantly affect infrastructure investment, production, employment, and the provision of social services.

Privatization is often prescribed as the miracle cure-all for the many ills of a public power sector. This paper attempts to clarify the role of privatization in power sector reform and discuss the prerequisites for successfully privatizing power sector assets. They find that the timing and sequencing of privatization is critical to the success of a reform program and that some reform strategies may be ineffective or unfeasible because they proceed to privatization without achieving the necessary prerequisites.